It’s a no-brainer for face-to-face businesses in the UK to accept cards. In fact, card payments has surpassed cash transactions, so all but a few special cases would suffer as a result of not accepting cards.
But how does one go about card acceptance?
Unless you’re choosing a payment facilitator, it will be necessary to have certain things in place streamlining the legal, efficient and secure payment processing involved in passing money from a customer’s card to your bank account.
An important role in this cycle is the ‘acquirer’ or ‘acquiring bank’ (same thing). Let’s look at where acquirers fit in with your face-to-face business.
How does acquiring work?
You cannot process cards without an acquirer, but you also need a processor to streamline transactions from the frontend where the customer pays, and card network/scheme membership to even accept the cards.
So where do acquirers fit in to the payment cycle? Acquiring banks provide merchants with a merchant account through which transactions are processed. The account gets a merchant identification number (MID), used to identify the merchant during transactions, similar to how bank account numbers identify where money goes.
Acquirers also have the necessary memberships in place with the different card schemes you want to accept, such as Visa and Mastercard. Card schemes have strict rules around card acceptance, which the acquirer fulfils and passes on to the merchant. In that sense, they act as a mediator to the card schemes, and accepting new merchants therefore involves business checks to see if you fulfil those rules and security requirements yourself. Acquirers further have the technology in place to integrate card acceptance into the payment processing system merchants use.
How the different parties interact in the card payment cycle. Image: Mobile Transaction
Then there is the business bank account, which is where the transaction money is settled after being processed through the acquirer’s merchant account (this process is referred to as ‘settlement’). Your business bank account is, in other words, separate from your merchant account.
From the payer’s side, there is the card issuer who issues the credit or debit card the customer uses. This is typically the customer’s bank, who during the payment process verifies there’s enough credit or debit to fund the transaction. The issuer sends its authorisation to the card network who passes it on to the acquirer, after which it goes to the processor to finalise the transaction. It is after the transaction is complete that settlement can start.
How do I get an acquirer?
There’s really no easy way to choose the best acquiring solution. Understanding how card processing works is useful, but when it comes to distinguishing acquirers, there’s a lot of overlap in roles. For example, American Express acts as acquirer, processor and card network all in one, but allows other acquirers to accept Amex through a special agreement.
Acquirers may offer card machines (sometimes even POS systems), a web portal for analytics and the processing part too, any of which may be outsourced or handled internally. Rarely do you see ‘pure’ acquirers that only offer just that. In any case, acquirers will have the technological setup in place to integrate with card machines for point of sales or a payment gateway for online sales, enabling a processor (either the acquirer is also a processor, or an external processor will take over) to process transactions through the merchant account.
It’s possible to go directly to an acquirer to apply for a new merchant account, or a merchant service provider to look for a complete payment solution where they help with the merchant account, or aggregator for an easy solution that doesn’t require setting up a merchant account. Our overview below covers all these options.
The following acquirers are used by UK businesses trading face to face. A word of warning: it is common for acquirers today to also be a processor and offer integrated solutions like card machines and POS software. It means that lines are often blurry between acquirers and merchant service providers (more on that later) – sometimes, you can even manage entirely with the acquirer if they offer end-to-end solutions. Below, we’ve identified who offers processing as well as card issuing and acquiring.
Another thing to consider is which cards you want to accept. All acquiring banks except for Amex accept Mastercard and Visa, but not always Diners Club, JCB, and so on. That’s because they have to have those card scheme memberships (not simple to obtain) to accept those. We also look at which acquirers can integrate with e-commerce and mail order/telephone order (MOTO) payments and whether they offer card machines and POS solutions directly through them as well. As regarding fees, these are harder to come by and best attained by contacting acquirers directly.
Merchant service providers
Independent sales organisations (ISOs), merchant account providers or merchant service providers – different terms, same thing. These are providers that sell acquiring and card processing to merchants. In the past, acquiring banks were responsible for signing up new merchants themselves, but this job has in part shifted to merchant service providers who are better able to offer packaged solutions to merchants.
There are many of these in the UK. Our list focuses on key ISOs, classed together according to which acquirers they have partnerships with. As they are generally not that transparent, some of them may have more partnerships than what we are aware of. Again, choosing one is not simple, but if you look at acquirers above and pick one that looks ideal, you could look at the ISOs with a relationship to that acquirer.
The merchant service provider will offer prices determined in part by the fees they negotiate with the acquirer. They will also provide card machines and sometimes POS software. If you already have the POS system, you can go for one that just provides card machines.
Contracts are made directly with the ISO, so beware of the fine print (e.g. termination fees, contract length) before you go ahead with a deal, and do look around before settling on one provider.
How to proceed
So what’s the best way to proceed from here? You can start by asking yourself what you need in your business. Do you want the lowest fees? Best customer support? Flexibility? Simplicity? Expertise? A need for different sales channels such as e-commerce? A combination of things? The things you prioritise here should be the focus when you sift through the options.
Then consider which type of provider is best for you:
- Acquiring banks: Best for minimising third parties and fees added by merchant service providers. Should look into contract fine print, requirements for PCI DSS compliance and hidden fees. If wanting to accept Amex, you’ll need a separate agreement for this. Essential to have your own merchant account when turnover is £100k+ a year.
- Merchant service providers/ISOs: Best for a one-stop service for your acquiring, card processing and possibly POS solution too. The ISO may be able to lower acquiring fees compared to what the acquirer can offer directly, but they may also add their own fees, hidden costs and lock-ins, so check the fine print carefully before signing on to anything.
- Aggregators: Best for simplicity, flexibility (usually no monthly fees or contract period) and transparency. Only suitable for small to medium businesses with turnover of up to £100k a year. The more your business takes, the higher the chance that getting a merchant account or ISO will be better worth it.
Acquirer and ISO costs can be hard to compare, as most of them encourage you to contact them about this. This is partly because fees depends on your turnover, business area and complex fee structures – so do pick some providers and approach them individually with your questions. You’ll also need to consider PCI DSS compliance costs, which each provider will have recommendations for. If you’re a small business who want to start easy, choosing an aggregator is a viable solution.